Should I Really Withhold Additional Taxes? – Avoid This Mistake + FAQs
- April 3, 2025
- 7 min read
Yes – you should withhold additional tax if your current withholding won’t cover your total tax liability.
This proactive step helps you avoid a surprise tax bill or IRS penalty when you file.
67% of Americans get a tax refund because they over-withhold during the year, while millions of others owe money for under-withholding. In this guide, you’ll learn:
🔍 When extra withholding is a smart move: Discover exactly when adding more tax from your paycheck makes sense (and when it doesn’t).
💸 How to avoid nasty surprises: Learn how extra withholding can shield you from unexpected year-end tax bills and IRS underpayment penalties.
📃 Key tax terms explained simply: We break down W-4 forms, safe harbor rules, estimated taxes, and other jargon so any U.S. taxpayer can understand.
🗺️ Federal vs. state rules: Get a quick comparison of IRS rules vs. state rules (from California’s high taxes to Texas’ no-tax approach) including a handy state-by-state table.
🤔 Real-world examples & tips: See three common scenarios (employee with side gig, full-time freelancer, high-income couple) and exactly how they should handle additional withholding – plus common mistakes to avoid.
Should You Withhold Additional Tax? (The Direct Answer)
If you’re unsure whether to withhold extra tax from your paycheck, the answer boils down to your situation. You should withhold additional tax if your regular tax withholding isn’t enough to cover all your income.
This often happens if you have sources of income beyond a single salary – for example, freelance or gig earnings, investment profits, or a second job. In these cases, bumping up your withholding now can save you from a big balance due later.
On the other hand, if you consistently get a large refund each spring, you’re already over-withholding. In that case, you do not need to withhold more – in fact, you might consider withholding less to bring your refund down to a more reasonable amount.
The goal is a Goldilocks approach: not too little, not too much. You want your tax payments “just right” so you don’t owe a bundle or give the government an interest-free loan.
Remember, your employer withholds federal income tax based on the Form W-4 you file. That form lets you fine-tune how much tax comes out of your paycheck. If the standard formula (based on your income and filing status) doesn’t account for extra income you have, you’ll likely need to adjust the W-4 to withhold additional tax.
It’s a common situation – for example, two-income households and side hustlers often find that default withholding isn’t enough for their total combined income.
In a nutshell, withhold extra if you’d otherwise underpay; don’t bother if you’re on track or overpaying. Next, we’ll explore exactly how to make those adjustments and why they matter.
How to Adjust Your Tax Withholding
Getting more tax withheld is straightforward for most employees. Here’s how you can do it:
Use Form W-4: Submit an updated Form W-4 to your employer with instructions to withhold an additional fixed amount each pay period. On the current W-4 (2025 version), you can simply enter a dollar amount on Line 4(c) – “Extra withholding” – which will be taken from every paycheck. For example, writing
$50means an extra $50 federal tax is withheld from each paycheck. You can update your W-4 anytime during the year.Online payroll systems: Many employers use payroll providers like ADP, Paychex, or Workday. If so, you can usually log into your employee portal and update your W-4 settings electronically. The change will take effect on the next pay cycle. This is convenient – you can increase or decrease your extra withholding as needed (for instance, add more in months you earn extra bonus or side income).
Estimated tax payments: If you’re self-employed or your extra income isn’t through an employer, you won’t have a W-2 paycheck to tweak. In that case, make quarterly estimated tax payments to the IRS instead of (or in addition to) adjusting withholding. Freelancers, independent contractors, and business owners typically use Form 1040-ES or the IRS online payment system to pay tax directly. You can choose to do a bit of both – for example, if you have a W-2 job and a side gig, you might increase withholding at your job and make some additional payments on your own.
State withholding: Don’t forget state taxes. If your state has income tax, you may also want to adjust your state withholding via your state’s W-4 equivalent (more on state-by-state rules in a later section). Most state forms also have a line for extra withholding, just like the federal W-4.
By taking these steps, you’re essentially pre-paying more of your taxes throughout the year. It might sting a little to have a smaller paycheck, but it can prevent a worse outcome – a big bill (plus interest) in April. Now, let’s examine why finding the right balance in withholding is so important.
Underwithholding vs. Overwithholding: Finding the Right Balance
Getting your withholding right is a balancing act. Underwithholding means not enough tax is taken out during the year. Overwithholding means too much tax is taken. Both have downsides, so let’s compare:
Underwithholding (Too Little Tax Withheld): This is risky territory. If you underpay your taxes during the year, you’ll owe the IRS money when you file your return. Many taxpayers have felt the shock of a hefty bill because their withholding didn’t cover side income, investment gains, or dual incomes. Worse, the IRS can charge you an underpayment penalty if you paid significantly too little throughout the year.
This penalty is essentially interest on the amount you underpaid, and it’s not cheap – often around 7%–8% annualized, calculated for each quarter you were short. Underwithholding can happen easily if, for example, you start a side gig (with no taxes withheld) or if you have two jobs and both withhold assuming they’re your only job. The IRS has a safe harbor rule (explained in Key Terms below) that gives you a pass if you’ve paid enough in via withholding. But if you fall outside that safe harbor, underwithholding can cost you extra in penalties and interest. Bottom line: too little withholding can lead to an unpleasant surprise and extra fees.
Overwithholding (Too Much Tax Withheld): This is the opposite scenario – you’re paying in more tax than necessary from each paycheck. While this won’t get you in trouble (the IRS happily holds your money), it’s not ideal for your wallet. Overwithholding leads to a big refund check after you file your taxes. Sure, a fat refund might feel like a bonus, but remember it was your money all along.
You essentially gave the government an interest-free loan. For example, if you got a $3,000 refund, that’s $250 per month you could have had in your pocket. You might have used that money for expenses or invested it during the year.
Overwithholding isn’t financially harmful in the long run (you do get the money back), but it’s a missed opportunity. Many people intentionally overwithhold as a forced savings strategy, but from a pure financial perspective, it’s better to get your pay as you earn it and manage it yourself.
Just Right (Optimal Withholding): The ideal scenario is to withhold as much as needed to cover your tax liability—and nothing more. This way, you neither owe a large amount nor get a huge refund; you come out close to even at tax time. Achieving this requires a bit of planning. You might need to update your W-4 when your life changes (a new job, marriage, side income, home purchase, etc.) or as laws change. The IRS provides a Tax Withholding Estimator tool online that can help dial in the right amount. Ultimately, the benefit of getting it just right is maximum take-home pay with no penalties. You’re using your money throughout the year while still meeting your tax obligations.
To summarize the trade-offs, here’s a quick look at the pros and cons of choosing to withhold additional tax:
| Pros ✅ | Cons ❌ |
|---|---|
| Avoids IRS penalties for underpayment – you stay in the safe zone by meeting safe harbor rules. | Reduces each paycheck – you take home less money now, which could tighten your monthly budget. |
| Prevents a large tax bill at filing time, giving you peace of mind and no scrambling for funds in April. | Interest-free loan to government – if you overdo it, you’ll get the excess back as a refund, but without interest or growth. |
| Covers untaxed income sources (gig work, investments) automatically, so you don’t have to remember to pay quarterly on your own. | Potential to overpay – if your estimates are too high or your situation changes, you might withhold more than necessary and shrink your refund too much (or create one when you could have had that cash). |
| Simplifies tax time – with enough withheld, you’re less likely to need extensions or scramble to make a big payment. | Requires estimation – you’ll need to predict your income and tax, which isn’t always exact. Adjustments might be needed to avoid overshooting or undershooting. |
As you can see, withholding extra tax has clear benefits in avoiding trouble, but it comes with a trade-off in reduced cash flow. The key is to weigh those pros and cons for your circumstances. If you’re someone who struggles to save or set aside money for taxes, having it withheld might actually help you budget.
If you’re financially disciplined and want to maximize every dollar, you might prefer to withhold less and manage the payments yourself (just beware of the safe harbor to avoid penalties).
Next, we’ll clarify some important terms and concepts we’ve touched on, so you fully understand the landscape. After that, we’ll dive into specific mistakes to avoid and real-life examples to tie it all together.
Key Tax Terms You Should Know
Tax talk is full of jargon. Let’s break down some key terms and entities related to withholding and extra tax, in plain language:
Internal Revenue Service (IRS) – The nation’s tax authority. The IRS is a bureau of the U.S. Department of the Treasury. It collects federal taxes, issues refunds, and enforces tax laws. When we talk about IRS rules (like safe harbor or penalties), these come from federal law that the IRS administers. Essentially, the IRS is the referee that decides if you paid enough tax throughout the year.
U.S. Treasury – The Treasury Department is the broader government department that oversees the IRS. When you pay taxes, the money goes into the U.S. Treasury. Treasury also issues U.S. bonds and manages federal finances. In context, you might hear “Treasury” in relation to withholding tables or tax policy, but day-to-day, taxpayers interact with the IRS.
Tax Withholding – This is the practice of taking out (withholding) taxes from your income as you earn it. For employees, federal and state income taxes (and other taxes like Social Security) are withheld from each paycheck. The amounts are sent to the IRS (and state treasury) on your behalf. Withholding acts as a pay-as-you-go system so that by year’s end, ideally, your tax is largely paid up.
Form W-4 – This is the form you give your employer to tell them how much federal income tax to withhold from your wages. In 2020, the W-4 was redesigned: it no longer uses allowances, but rather direct inputs for things like dependents and other income. Crucially, Line 4(c) on the W-4 allows you to specify any extra dollar amount you want withheld each pay period. There’s also a similar line for extra state withholding on your state’s W-4 form (if your state has income tax). If you want to adjust your withholding, submitting a new W-4 is the way to do it.
Estimated Tax Payments – These are tax payments you send directly to the IRS (and possibly to states) on a quarterly schedule. They are typically used by those who have significant income with no withholding, such as self-employed individuals, freelancers, landlords, or investors. The due dates are usually April 15, June 15, Sept 15, and Jan 15 of the following year. You can mail vouchers (Form 1040-ES) or pay online. Estimated payments and withholding serve the same purpose: they are prepayments of tax. You can mix and match them. For example, if you have a side gig, you could either make estimated payments on that income or increase your W-4 withholding at your day job to cover the extra tax – either method is fine by the IRS.
Safe Harbor Rule – This is an IRS rule that provides a penalty-free zone for tax payments. The safe harbor says that if you pay in enough tax during the year (through withholding and/or estimates), the IRS won’t charge you an underpayment penalty, even if you owe a bit more at filing time. For most taxpayers, “enough” means 90% of your current year’s tax or 100% of last year’s tax, whichever is lower. For higher-income folks (over $150,000 income), the last-year safe harbor is a bit higher: 110% of last year’s tax. Also, if you end up owing less than $1,000 after all your payments, the IRS won’t hit you with a penalty. In short, meet the safe harbor and you’re safe from penalties. Withholding additional tax is one way to ensure you hit these targets.
Underpayment Penalty – If you don’t meet the safe harbor and owe a lot at tax time, the IRS may charge you this penalty for not paying in evenly throughout the year. It’s essentially interest on the amount that should have been paid earlier. The rate can change quarterly (it tracks federal interest rates); recently it’s been around 7%–8% annually. The penalty is calculated for each quarter that you underpaid, so consistent underpayment all year is the worst case. By withholding enough or paying estimates, you avoid this. (Many states have similar penalties for state taxes, often with their own safe harbor thresholds.)
Gig Economy / Freelance Income – This refers to money you earn from platforms like Uber, Lyft, DoorDash, Upwork, Fiverr or any contractor/self-employed work (often reported on Form 1099-NEC or 1099-K). Such income usually has no tax withheld by default, since you’re not an employee. If you have significant earnings from gigs or freelancing, you are responsible for covering the taxes yourself. You can do this by making quarterly estimated payments or by increasing the withholding on other income sources (like a W-2 job or a spouse’s job). Gig income not only has income tax, but also self-employment tax (Social Security/Medicare) – another reason to stay on top of paying enough throughout the year.
Payroll Provider (e.g., ADP) – Companies often outsource payroll to services like ADP, Paychex, or use software like Gusto or QuickBooks. These systems handle the calculation and remittance of your withholding. If you want to change your withholding, these systems will process your new W-4. It’s worth noting that payroll systems treat extra withholding simply as an additional dollar amount – they don’t adjust it unless you submit a new request. Some employers allow you to enter this info on an employee self-service website. Knowing what system your employer uses can help you figure out how to submit changes quickly.
With these terms explained, you should feel more confident about the concepts involved in tax withholding. Now let’s move on to some common mistakes people make in this area – so you can avoid them.
Avoid These Common Mistakes
When deciding on your withholding, it’s easy to slip up. Here are some frequent mistakes (and misconceptions) to steer clear of:
⚠️ Forgetting to update your W-4 after life changes. Your tax picture can change when you get a second job, start a side business, get married or divorced, have a child, or experience other big shifts. If you don’t update your W-4, you might be withholding based on old information. Avoid the “set it and forget it” trap – review your W-4 each year and after major events to ensure it still reflects your situation.
⚠️ Ignoring side income until tax time. A lot of people with freelance or gig earnings don’t think about taxes on that money until they file – and then they’re stunned by what they owe. Don’t wait. If you earned extra income (1099s, rental income, investment gains), assume some of it belongs to the IRS and plan for it now. Either set aside money for quarterly taxes or add extra withholding via your main job’s W-4. This way, you won’t be caught short by a big bill.
⚠️ Assuming your withholding is correct by default. The IRS withholding tables your employer uses are a one-size-fits-most approach. They might not fit you perfectly. For example, if you and your spouse each earn $70k, each of your jobs might withhold as if you’re in a lower bracket, but combined you’re in a higher bracket – meaning together you underpay. Use tools like the IRS Withholding Estimator or talk to a tax professional if your situation isn’t simple. Don’t just trust that your employer “got it right” – the responsibility is ultimately yours.
⚠️ Over-relying on a tax refund as forced savings. While it’s nice to get a refund, deliberately overwithholding just to get a big check later isn’t the most efficient strategy. Some people do this to avoid saving on their own, which is understandable. But consider this: if you adjust your withholding to be more accurate, you could take that extra money each month and put it in a high-yield savings account or toward debt. Don’t let the “refund romance” cost you – plan your withholding with purpose. A small refund or small balance due is usually the sweet spot.
⚠️ Not paying attention to state taxes. Maybe you got your federal withholding perfect – great! But did you account for state income tax? States often have separate withholding forms. If you moved to a state with higher taxes, or started working in multiple states, it complicates things. Also, state underpayment penalties can apply just like federal. Remember to adjust state withholding or make state estimates if needed. For instance, a big bonus or capital gain might not have state tax withheld automatically – you’d need to handle that. Don’t overlook your state obligation, as it can be significant in places like California or New York.
Avoiding these mistakes comes down to being proactive and informed. Now, let’s look at some concrete examples of different taxpayers and how additional withholding can come into play for each.
Examples: When Extra Withholding Makes Sense (3 Scenarios)
To make all this talk of withholding more tangible, let’s consider three common scenarios. In each case, we’ll see why extra tax withholding is considered and how the person or people can handle it.
Scenario 1: Salaried Employee with a Side Hustle
Profile: Jane works a full-time job earning a $60,000 salary (taxes withheld from paychecks). She also has a side hustle designing websites, bringing in an additional $15,000 in income (no taxes withheld, since clients pay her directly).
The Risk: At tax time, Jane will owe taxes on that $15,000 of side income. Suppose her combined federal and state tax rate on that extra income is about 20%. That’s an extra $3,000 in tax for the year. If she doesn’t account for this during the year, she could be hit with a $3,000 bill when filing – and possibly an IRS penalty for underpayment. Her employer didn’t know about this side income, so they couldn’t withhold for it; it’s on Jane to cover the gap.
| Situation | Jane has a $60k salaried job (W-2 income with tax withheld) and earns an extra $15k from freelance web design (untaxed 1099 income). |
|---|---|
| Tax Gap | The side hustle’s income (~$15k) could add roughly $3,000 in federal/state taxes that aren’t being covered by her paycheck withholding. If unaddressed, she’ll owe this at year-end (plus interest if too underpaid). |
| Solution | Jane submits a new W-4 at work to withhold extra. She calculates ~$3,000/year is about $250 per month. She asks her employer (via W-4 Line 4(c)) to withhold an additional $125 from each biweekly paycheck. This way, by year-end, the extra ~$3k tax is already paid. Alternatively, she could pay ~$750 quarterly as estimated taxes herself – but increasing the W-2 withholding is simpler for her. |
Outcome: By adjusting her W-4, Jane avoids a nasty surprise. When she files her taxes, the extra $3,000 is already covered through the additional withholding, and she stays within safe harbor limits (no penalty from the IRS). She effectively treated her side hustle like a “second paycheck” for tax purposes.
Scenario 2: Full-Time Freelancer (1099 Income Only)
Profile: Mike is a self-employed graphic designer. He has no employer – all his income comes from freelance projects. This year he expects to earn $80,000 on 1099-NEC forms from various clients. Mike doesn’t get a paycheck with withholding; clients pay him gross, and it’s up to Mike to handle taxes.
The Risk: With no automatic withholding, Mike could easily fall behind on taxes. On $80,000 of self-employment income, let’s say federal and state taxes plus self-employment tax might total around $20,000 (just an estimate for illustration). If Mike waits until filing his tax return to pay, he’d have to come up with that $20k in one lump sum – and definitely face underpayment penalties because he paid $0 during the year. The IRS expects quarterly tax payments from people like Mike.
| Situation | Mike earns ~$80k independent income (no employer withholding). He’s responsible for all taxes: federal income tax, state income tax (if applicable), and self-employment tax (Social Security/Medicare for himself). |
|---|---|
| Tax Gap | Roughly $20,000 annual tax obligation (estimate) with $0 prepaid since no withholding is taken. If ignored, Mike would not only owe $20k at filing, but also substantial penalty interest for underpaying all year. |
| Solution | Mike needs to simulate his own “withholding” through estimated tax payments. He divides $20,000 into four and pays about $5,000 quarterly to the IRS (and likewise to his state tax agency if his state has income tax). He marks the calendar for April 15, June 15, Sept 15, and Jan 15 to send in payments. To be safe, he could even pay monthly or as each big invoice comes in, using the IRS online payment site – the key is to pay throughout the year. If Mike wants, he could also consider forming an S-Corp and paying himself wages with withholding, but that’s a more complex strategy beyond our scope. The simplest path: treat estimated taxes as a regular bill. |
Outcome: By making regular estimated payments, Mike stays on top of his obligations. He avoids the underpayment penalty because he meets the safe harbor (paying at least 90% of what he’ll owe). At tax time, he may still owe a small difference (or get a small refund) depending on the exact tax calculation, but there are no nasty surprises. Note: If Mike’s spouse had a W-2 job, another strategy could be increasing the spouse’s withholding to cover Mike’s tax – the IRS doesn’t care who paid as long as it’s paid – but absent that, Mike’s on his own to pay in quarterly.
Scenario 3: High-Income Couple with Investments
Profile: Olivia and Daniel are a married couple with well-paid jobs and investment income. Olivia earns $200,000 at her corporate job, and Daniel earns $180,000 at his. They also sold some stocks for a $100,000 capital gain this year and have other investment income (interest and dividends) around $20,000. Their employers withhold tax on their wages, but nothing was withheld for the one-time stock sale or other investment income.
The Risk: High-income couples often face underwithholding because each employer withholds as if the employee is single or married filing separately. Combined, Olivia and Daniel are in a higher tax bracket than their withholding tables assumed. Additionally, the $100k capital gain will incur capital gains tax (probably 15% federal, plus state tax if applicable) and no withholding was applied to that sale. That alone could be a ~$15,000 federal tax bill, not even counting state. If they do nothing, they could owe tens of thousands in April and potentially get hit with penalties, especially since high earners need to meet the 110% of last year safe harbor due to their income level.
| Situation | Married couple: combined W-2 wages $380k (withholding on each, but not coordinated), plus $100k in taxable stock gains and $20k in interest/dividends (no withholding on these). They live in a state with income tax (e.g., California or New York). |
|---|---|
| Tax Gap | Their wage withholding was set based on individual incomes, but combined $380k pushes them into ~35% federal bracket. They might underwithhold on wages by a few percentage points, leading to several thousand owed. More glaring is the $100k capital gain: about $15k federal tax due (15%) and maybe ~$9k state tax (if CA ~9%). That’s ~$24,000 of tax on the stock sale with $0 prepaid. |
| Solution | Olivia and Daniel take a two-pronged approach: 1) They each file a new W-4 at work using the Multiple Jobs worksheet or simply adding extra withholding. For instance, Olivia might add an extra $1,000 per month and Daniel $800 per month withholding for the remaining months of the year, to account for their higher combined bracket and the investment income. 2) For the big stock gain, they decide to make an estimated tax payment immediately for the expected $24k combined federal+state tax on that gain, or incorporate that amount into their W-4 extras over the rest of the year. Because the gain happened mid-year, they still have time to spread out the withholding increases. They could also pay one lump sum to the IRS and state tax department shortly after the sale (the IRS treats withholding and estimates similarly, though one advantage of withholding is that even late-year withholding is prorated over the year for penalty purposes). |
Outcome: By adjusting their W-4s, Olivia and Daniel ensure their wage withholding now reflects their true tax bracket when combined. By the end of the year, their extra withholding covers the taxes on their interest and dividends. By proactively paying for the stock gain (either through a separate estimated payment or ramped-up withholding), they avoid a massive April bill.
They also dodge underpayment penalties by meeting the safe harbor (in their case, they made sure to cover at least 110% of last year’s tax because of their high income). This high-earning couple’s strategy shows how a one-time event (like selling stock or property) is a signal to consider withholding additional tax for that year.
These scenarios illustrate a key point: different taxpayers have different reasons to adjust their withholding. Whether it’s a side gig, self-employment, or irregular income, the solution is the same in principle – pay more in during the year either via withholding or estimates. Next, let’s shift from individual situations to a broader view: how do rules vary across different states?
State-by-State Breakdown of Withholding Rules
Federal tax rules apply to everyone in the U.S., but state income taxes can complicate the picture. If your state levies an income tax, you might need to also consider state additional withholding to avoid a state tax bill. Every state has its own tax rates and forms, and some have none at all. Below is a breakdown by state:
| State | Income Tax & Withholding |
|---|---|
| Alabama | Yes – progressive (2% to 5%). State withholding form allows extra withholding. |
| Alaska | No – no state income tax (nothing to withhold). |
| Arizona | Yes – flat 2.5% tax. You can opt for extra state withholding if needed. |
| Arkansas | Yes – progressive (up to ~4.7%). Can adjust withholding via AR state form. |
| California | Yes – progressive (1% up to 13.3%, highest in the nation). Use Form DE-4 for extra state withholding. (Underpayment penalty if you owe ≥ $500 at year-end, so plan accordingly.) |
| Colorado | Yes – flat 4.40% tax. State W-4 available for adjustments. |
| Connecticut | Yes – progressive (3% to 6.99%). Allows additional withholding; CT has its own W-4. |
| Delaware | Yes – progressive (up to 6.6%). Can withhold extra using DE form. |
| Florida | No – no state income tax. |
| Georgia | Yes – progressive (up to 5.75%). GA W-4 form for state withholding adjustments. |
| Hawaii | Yes – progressive (up to 11%). High earners should watch state underpayment as HI’s top rate is steep. |
| Idaho | Yes – flat 5.8% (recently implemented flat tax). Extra withholding optional via state form. |
| Illinois | Yes – flat 4.95%. Use IL-W-4 to adjust state withholding if needed. |
| Indiana | Yes – flat ~3.15% (plus county taxes). State form allows extra withholding. |
| Iowa | Yes – progressive (rates decreasing, top ~6% for 2025). Additional withholding can be specified. |
| Kansas | Yes – progressive (up to 5.7%). State W-4 for adjustments. |
| Kentucky | Yes – flat 4.5%. KY’s K-4 form lets you add extra withholding. |
| Louisiana | Yes – progressive (2% to 4.25%). Can adjust via state withholding form. |
| Maine | Yes – progressive (up to 7.15%). State form available for extra withholding. |
| Maryland | Yes – progressive (2% to 5.75% state; local counties add up to ~3%). Consider both state and local when adjusting withholding. |
| Massachusetts | Yes – flat 5% (with an added 4% surtax on income over $1 million). You can request extra withholding on MA Form M-4. |
| Michigan | Yes – flat 4.25%. MI W-4 allows adjustments. |
| Minnesota | Yes – progressive (5.35% up to 9.85%). High earners in MN may consider extra withholding. |
| Mississippi | Yes – flat 5% (as of recent tax changes). State form for withholding exists. |
| Missouri | Yes – progressive (up to ~4.95%). Extra withholding can be set via MO W-4. |
| Montana | Yes – progressive (up to 6.75%). MT allows additional withholding on request. |
| Nebraska | Yes – progressive (up to 6.64%). Can adjust using state Form W-4NA. |
| Nevada | No – no state income tax. |
| New Hampshire | No – no state income tax on wages (it formerly taxed interest/dividends, but that tax was repealed for 2025). |
| New Jersey | Yes – progressive (1.4% to 10.75%). NJ has its own W-4 (NJ-W4) for setting extra withholding. |
| New Mexico | Yes – progressive (up to 5.9%). State form allows extra withholding. |
| New York | Yes – progressive (4% to 10.9%). Use Form IT-2104 to adjust NY withholding. NYC and Yonkers have local income taxes too, which are withheld via this form. |
| North Carolina | Yes – flat 4.75%. NC has a state withholding form (NC-4) to adjust allowances and extras. |
| North Dakota | Yes – progressive (two brackets, top 2.5%). ND’s relatively low rates still allow extra withholding if needed. |
| Ohio | Yes – progressive (several brackets, top ~3.99%). Ohio has a IT-4 form for withholding; watch for local city taxes separately. |
| Oklahoma | Yes – progressive (0.25% to 4.75%). OK state form allows adjustments. |
| Oregon | Yes – progressive (4.75% up to 9.9%). Oregon Form OR-W-4 can be used for extra withholding. |
| Pennsylvania | Yes – flat 3.07%. PA doesn’t have allowances (flat rate applies to all wages); you can request additional withholding with PA form if needed. (Also note local earned income taxes in many PA municipalities.) |
| Rhode Island | Yes – progressive (3.75% to 5.99%). RI W-4 available for adjustments. |
| South Carolina | Yes – progressive (0% to 7%). SC has a state W-4; you can withhold extra to cover any gap. |
| South Dakota | No – no state income tax. |
| Tennessee | No – no state income tax. |
| Texas | No – no state income tax. |
| Utah | Yes – flat 4.85%. UT withholding form allows extra dollar amounts. |
| Vermont | Yes – progressive (3.35% to 8.75%). VT W-4 enables additional withholding. |
| Virginia | Yes – progressive (2% to 5.75%). VA Form VA-4 for withholding adjustments. |
| Washington | No – no tax on wage income (Washington has a 7% tax on certain capital gains, but no traditional income tax on salaries). |
| West Virginia | Yes – progressive (3% to 6.5% on higher incomes; recent cuts are lowering rates). WV withholding form can be adjusted. |
| Wisconsin | Yes – progressive (3.54% to 7.65%). WI Form WT-4 lets you fine-tune withholding. |
| Wyoming | No – no state income tax. |
Note: In all states that have an income tax, you can request additional state withholding if you expect to owe extra. The process is similar to the federal: fill out the state’s version of the W-4 form and add an extra amount per paycheck. Some states, like California and New York, have special forms and may even have lower thresholds before penalties kick in (e.g., California’s $500 threshold for underpayment). If you live in a no-income-tax state (like Texas or Florida), you only need to worry about federal withholding (one less thing!). And if you work in one state and live in another, be mindful of reciprocal agreements or paying taxes to two jurisdictions – make sure enough is withheld for each.
By now, we’ve covered why, when, and how to withhold additional tax, common pitfalls, examples, and state differences. To wrap up, here are some quick Q&As addressing common lingering questions:
FAQs
Q: Can I just increase the withholding at my W-2 job to cover my freelance income?
A: Yes. This is a common and legal strategy. By upping the tax withheld from your paycheck, you can cover untaxed side income and avoid making separate estimated payments.
Q: Will I get penalized if I wait and pay all my taxes at once in April?
A: Yes – if you owed more than the safe harbor allows. The IRS expects taxes throughout the year. A big payment in April can trigger underpayment penalties unless you met safe harbor criteria.
Q: Should I aim for a small refund instead of a huge one?
A: Yes. It’s usually better to get a small refund (or owe a small amount) than a huge refund. A huge refund means you overwithheld significantly, which is money you could’ve used during the year.
Q: My spouse and I both work. Should we withhold extra to avoid owing taxes?
A: Yes, probably. Dual-income couples often underpay if each employer withholds assuming single incomes. Use the IRS worksheet for multiple jobs or add a fixed extra amount to one or both of your W-4s.
Q: If I got a big tax bill last year, should I change my W-4 now?
A: Yes. A big bill means you underpaid through withholding. Adjust your W-4 as soon as possible to withhold more, so you don’t repeat that outcome. You might also pay an estimated tax for the current year to catch up.
Q: Does extra withholding carry over if I overpay?
A: No. Any overpayment from extra withholding will be refunded to you (or applied to next year if you specifically request it on your tax return). It doesn’t “roll over” automatically – you either get it back as a refund or choose to apply it.
Q: Do states charge penalties like the IRS for underwithholding?
A: Yes. Most states with income tax have similar underpayment penalties. The thresholds can be different (some states kick in penalties at $500 owed, etc.), but generally, they expect you to pay during the year just like the IRS does.
Q: Is it better to withhold extra or put that money in savings and pay quarterly?
A: It depends on your discipline. If you’re diligent, you could set the money aside in a savings account and make quarterly payments (earning a bit of interest). If you worry you’ll forget or spend it, having it withheld ensures it’s paid in (but you forgo any interest). Both methods work – the key is that the IRS just wants the tax paid one way or another.